Altcoins

What is an ICO (and how do I know when it’s a good one?!)

Putting money into cryptocurrency projects is a new, exciting, and quite frankly scary method of investing.

Don’t get me wrong, I think the implications of crowdfunding are huge – while before now only accredited investors with a minimum of $1 million in the bank were the only people legally allowed to partake in venture capital funding, tokenized projects allow just about anyone to invest in just about anything. It’s pretty great.

Of course, it comes at a cost. A Wall Street Journal report found that 1 in 5 ICOs were straight up scams, and that’s not to mention the ones that simply don’t have a valid business plan. Most ICOs are going to fail, let’s be real – so how do you know if you’re making a good investment or not?

The answer is due diligence and information, two things that any VC capital firm or accredited investor is very careful about. Of course, the space has been plagued by scams for the exact reason that the general public are less inclined to pursue those things, with a lot of over-eager people vulnerable to predatory marketing tactics aimed at screwing you over and leaving you broke and untrusting of the crypto market.

ICOs explained

ICO stands for Initial Coin Offering. Essentially a new project can seek funding from international investors in the form of cryptocurrency. In return, users typically receive the crypto-tokens attached to the project. The value of the tokens is, broadly speaking, related to the value of the project overall.

Sounds a lot like securities? In some cases it is, leading to regulatory problems and concerns that authorities like the SEC in America might be able to legally shut a lot of crypto projects down.

The saving grace is the definition of most ICO tokens as “utility tokens”, not “security tokens”. A security is a tradeable asset like stocks or bonds. Stocks and bonds represent the value of the underlying asset – an Apple stock is worth a direct portion of the value of the Apple company, plain and simple. While arguably a loophole, cryptocurrency tokens are aimed at being utility tokens – the token doesn’t represent the value of the project directly, but acts as a coupon for services provided by the project.

For example, Ether tokens (which users bought at a discount rate during the Ethereum ICO) allow people to pay the “gas” prices on the Ethereum blockchain, meaning the tokens are used to pay the costs incurred by computers running complex processes such as queueing and executing the commands in smart contracts. The token isn’t just an Ethereum stock, you actually need Ether tokens to operate the platform, reclassifying the tokens in legal terms to safer waters.

So, typically users will send cryptocurrency (often Bitcoin or Ether) to a project and receive a discounted amount of new tokens in return. The project probably converts the cryptocurrency received into fiat currency, and if you’ve made a good investment, they’ll use the funds they raised to develop their project into something that will generate profit, and when the token you’ve bought becomes listed on major exchanges and is a necessary tool used to operate the new project technology, demand will increase and drive up the price, offering you a good ROI.

Or, you know, they’ll take your money and , to let you know that you’ve been truly screwed. That’s called an “exit-scam” (taking the money – not sure what the penis thing is usually called), and they can be avoided by doing your due diligence and having an awareness of what to look for in a good ICO.

Features of a good ICO

Without any further ado, let’s get to grips with exactly what you’re looking for in a good ICO. Before we start, it’s important to remember that community hype and “Fear of Missing Out” or FOMO are two of the main causes of people jumping in to an ICO with their eyes closed. The crypto-community is full of paid shills (people covertly hired to market a project by pretending to be an enthusiastic community member). Shills will flood message boards, and even have conversations with each other for the benefit of others, with one shill being initially skeptical only to be “convinced” by another.

Between forum shilling, fake news stories, and pump and dumps designed to manipulate price and then crash it when enough people have bought in, there’s a lot to be wary of within the crypto community. Don’t trust anyone telling you to buy into a project, just look into it yourself and do your homework. Otherwise you will get scammed, and it will suck.

1) The project has a use case

What do I mean by use case? I mean the project is actually a good idea, and proposes to do something useful that makes sense. This is probably the aspect of due diligence that is most open to interpretation, and it’s best to combine your thoughts on the use case with the other aspects of due diligence, but if a project doesn’t seem like a necessary invention or if it’s simply too complicated for you to understand, pass. There are so many ICOs out there, it’s worth waiting until you’ve found something you’re sure people will actually want to be involved with.

Good use case example: Unibright
Unibright’s ICO is now closed (don’t want anyone to think I’m shilling in my anti-shilling article!), and I personally didin’t invest in it. I wasn’t 100% sure if it was going to be a good investment, but I was sure that the project use case is solid, and that was providing templates for creating smart contracts without having to hire a developer. That’s a smart move for business integration (blockchain devs are expensive), and while it might be a bit ahead of its time as of yet, I think it’s a good use case.

Bad use case example: BitCar
This is just my personal opinion, but tokenizing luxury cars on the blockchain just doesn’t seem like a good, useful idea to me. Regular cars depreciate in value, and while luxury cars can be maintained in such a way that they become more valuable, the process of a company physically buying fancy cars and storing them somewhere so they can sell tokens that represent the value of the car without being classed as a security so that people can own part of each car and hopefully earn money just seems… dumb. Frankly it also seems to be inspired by the lambo meme culture to an extent. Anything convoluted or seeking to capitalize on crypto memes is fun on the surface but not necessarily going to be a good move as an investment – remember, in this case you’re buying tokens, not cars. Speaking of which…

2) The token has a purpose beyond fundraising and a low supply

ICOs are a booming trend right now, with projects suddenly freed from the strict regulations around securities and suddenly free to raise millions of dollars in the almost entirely unregulated ICO space. That’s great – for the projects. It’s obvious why a project would want you to buy their token, but why would you want to buy it? What does it do? It’s crucial that the token has a use case beyond simply making enough money for the team to develop their project. Sure, the funding could help to create a valuable project, but you could be buying into the most valuable technology in the world – it won’t make you your money back unless the token is inseperable from the project.

You want to look for projects that hinge on the value of the token. You’ve heard of whitepapers, the investment documents providing the details on the ICO. Don’t skim the token section – if the purpose of the token is skimmed over or vaguely phrased in the description, odds are it doesn’t really do anything, meaning no-one will buy it, meaning it won’t increase in value after the ICO is over.

Beyond that, it’s good to be aware of the effect that the total supply has on the price. ICOs often release hundreds of billions of tokens in their ICO – the more, the merrier, right? Not really – take Bitcoin, for example. The total supply is 21 million, which is one of the factors that contributed to the price increasing so much. Supply and demand is key here – there are comparatively few tokens, so if people do want them, they becomes rare and therefore expensive. If you’re interested in a project, check the total token supply and compare it to some other projects with valuable tokens. You can do that on coinmarketcap.com or livecoinwatch.com.

3) The project has a good team

This is an area that I see people skimming over sometimes, but it’s absolutely crucial to the success of the project. I’ll keep this short: Check the project description and find out what they’re trying to do. Tokenising real estate? You’re looking for real estate developers with years of experience. Creating a cryptocurrency video game platform? You need all-star game developers on the team. Ask yourself, do the team members have a lot of experience in that area? Like expert levels? If the answer is no, move on.

4) The project has a good website and whitepaper

This is the part that often puts off potential investors. And by that I don’t mean “puts them off from investing”, I mean “people are put off by reading long documents and will just randomly gamble their money away regardless.”

Don’t! Just read the damn thing. Break it into smaller sections if you like, and take some notes. Go over everything on the checklist. You’re looking for a well-written white paper that doesn’t use flashy marketing language.

Note: NEVER invest in something that guarantees returns. That’s a scam, every time. 

The website and whitepaper should have no errors and should look like some time and money was spent on each. The whitepaper should leave no question regarding team, token, or project unanswered. Don’t skip that part – it’s important.

5) The project needs a blockchain

Yeah. Sometimes it just doesn’t.

Don’t get me wrong, not all ICOs are crypto projects, but the vast majority at the moment are, and they run on blockchain technology. Why? What can blockchain do for the project that normal IT can’t? I recommend joining the telegram group of an ICO (usually found on their website) and asking them exactly that. Too many projects are jumping on the ICO bandwagon as a way of making easy money, and a lot of tech projects are being launched that have no business being a blockchain project.

Reminder: a blockchain is a ledger that creates records that cannot be altered. Generally it requires a comparitavely huge amount of storage space to keep the ever-growing amount of data. It’s great for tracking transactions and supply chains of goods, or fighting censorship – it’s not great for centralized projects that require a lot of data storage, for example.

The jury is still out on blockchain even among worldwide adoption, so to say that a project doesn’t necessarily need a blockchain doesn’t mean it won’t make a good investment – but it’s definitely something to be considered.

So don’t just rush into any project that catches your eye. Do your homework.

Don’t want to end up like this guy, eh?

Interested in other cool crypto posts….check out Mining Wars: Bitmain vs Dragonmint and The Price of Bitcoin vs Cost of Mining.

Follow us on twitter @cryptoiscomin

What is GoNetwork?

GoNetwork aims to solve the huge problem of scaling in the Ethereum network.

It’s a low cost, low latency scalable network for the Ethereum network, essentially setting out to to do for Ethereum what the Lightning Network aims to do for Bitcoin. When you consider that the entire blockchain was almost brought to a standstill by people buying too many digital cats… it’s an important issue!

GoNetwork is an award winning project that took the main prize last year at ETH Waterloo, the world’s biggest Ethereum hackathon with Vitalik Buterin himself as one of the judges. The project has a large online following, with about 50,000 twitter and 70,000 telegram followers eager to see whether the team can pull it off. The team have a background in game development and business, and have already launched a product – however, like many promising projects, it’s not without its drawbacks. Let’s take a look.

Goals and products

The issue of scaling Ethereum is a major one, and that’s exactly what GoNetwork aim to do.  The scaling problem is the centre of much debate, with sharding the network into fragments being discussed as one of the options, as well the plasma solution and also off-chain transaction capability which is essentially what’s being proposed by both GoNetwork and Lightning Network.

While Ethereum have established themselves as the number one smart contract blockchain platform, it’s painfully apparent that if they don’t do something soon the network will simply not be able to process the contracts at an acceptable speed. They’re in a race against time, and the issue has led to competitors like EOS coming up with alternative smart contract solutions that don’t require Ethereum.

GoNetwork’s main competitors are probably Raiden, which is a pretty big fish, and Monetha, which is way down the list on coinmarketcap. While Raiden are a major player, there’s always room for more than one project to work on different solutions, especially one as urgent as the Ethereum scaling problem. meaning there’s definitely room for more than one project to take a stab at it.

With more and more ERC20 tokens and Ethereum smart contracts on the way, the blockchain is on a trajectory to slowing down and becoming clogged, so the more projects trying to solve the issue the better.If games such as CryptoKitties can clog the entire Ethereum network, how can we expect it to handle all of the DAPPs that launched this past year. Not to mention all of the ones coming up.

GoNetwork drew upon the team’s game development experience to launch Pocket, named after pocket change. This is what impressed the judges and won them the prize at ETH Waterloo. The product aims to teach young people financial responsibility and technological literacy through gaming, offering parents the ability to create assignable digital debit cards and claimable rewards for good behavior such as decreased spending month to month and controlled spending across different categories (food, entertainment, etc.).

Team

The team is definitely impressive, with experienced developers and business professionals from major companies like Infinidy Corp and Tinder.

Rashid Khan – CEO

Founder of the Infinidy Corp, a major game development company. Khan has experience as the CEO of a major company and with many connections in the business world already established, he’s a strong leader for the team. Khan created one of the biggest iOS theme park simulation games ever, called Happy Park, and his apps were rated #1 in 23 different countries.

Amit Shah – CTO

Software architect & Blockchain expert. Spearheaded research and development while working at Internet of Things company BlueRover as Vice President of Software Architecture R&D. He has also worked at several Ethereum based open source projects.

Xun Cai – COO

Graduated with distinction and honours in Software Engineering from the University of Waterloo, Ontario, Canada. He’s the co-founder and CTO of Infinidy Corp, and a serial entrepreneur who has created products that have been used by millions of people and have acquired a large active user base. He helped lead Infinidy to become one of the first companies to join Communitech, Canada’s top digital media incubator.

The team definitely have a very solid backing and look poised to create a great platform. So… where is it?

Issues with the ICO have plagued the project, and led to the loss of numerous followers. That’s not to say that the project is done, far from it – but updates have been slow, and their roadmap is vague and unclear. Worse than that, they seem to have made some pretty major mistakes along the way.

ICO Controversy

There are been a few warning signs throughout the ICO that not everything is completely above board.One issue is that the company have not been very forthcoming about certain important questions put to them by the Telegram group.

Where are they based? What’s the company registration number? Peter in the image asked them 8 times in a row, often as the Xun Cai skimmed over his questions to answer other ones live in the chat. The issue, it seems, is that they weren’t a registered company and as such didn’t have a base.

However, they lied about this, claiming to be a listed company on LinkedIn and their website.

The team posted their project and ICO plans with no set hard or soft cap, suggesting that they didn’t really know how much money they needed, or perhaps were fishing to see how much they could get. They settled on a $30 million hard cap, with 25% of earnings going to the team – that’s a pretty huge amount compared to most ICOs.

The Screenshot

The messages continue, with Cai or someone using Cai’s device saying that the ICO was all a “marketing game”.
Cai responded saying that they were hacked, and that he wasn’t sure how or even which device was hacked.

OK. So either way, not great. If they were hacked, the fact that the ICO security was so easily breached is a bad sign, and many in the telgram group were unsatisfied with Cai’s brief explanation. People have since been banned from the telegram group for asking about all of these issues, all of which paints the ICO in a pretty negative light.

However – let’s be honest. The ICO team are hungry for money? You don’t say! There’s a huge amount of money in ICOs these days, and it’s possible to be greedy and run a successful project at the same time. Does anyone remember the Waltonchain fiasco? How could we forget, right? A massive company trying to avoid actually paying for a giveaway of a mere $25,000 caught lying about it, negatively impacting their own market value. It happens, but Waltonchain is still in action and perhaps still a highly promising project.

If GoNetwork can really scale the Ethereum platform, no-one will care if they lied about their company registration or if they gave themselves million dollar bonuses. It all comes down to whether GoNetwork can run a successful project or not. The team are experienced and have already launched a working project, Pocket. While the ICO has some major red flags, it remains to be seen whether they aim to deliver or not. As with anything, the best thing to do is wait and see – it’s important to be aware of the good and the bad when looking into a potential investment, and while I’m personally interested in the project as a whole, the scandal surrounding the ICO has put me off investing in it.

If you’re interested in GoNetwork, you can check out their website here, and always remember – perform due diligence! Like Cai/Fake Cai said – it’s all a marketing game. Don’t be fooled by the flashy websites and white papers, and look deeply into a project before deciding to take the plunge and invest.

Interested in other cool crypto posts….check out Mining Wars: Bitmain vs Dragonmint and The Price of Bitcoin vs Cost of Mining.

Follow us on twitter @cryptoiscomin